Getting a contract from the government comes with several advantages. Moreover, it ensures a steady stream of work only if you know how to find it. One can use it strategically and help your business grow to the next level. But factoring for a government contract can be pretty challenging. In many circumstances, it may drain most of your resources, leaving little money for other projects.
Contract payment terms are generally stipulated in the Federal Acquisition Regulations (F.A.R.). However, the speed of payment is based on the size of the opportunity, the government agency, the size of the contractor, and urgency.
Basically, the government tries to clear payment within 15 days of invoicing. Such a quick turnaround on factoring for government contracts can be very helpful. But, not every business or contract gets paid quickly.
Not every company may wait 30 days to get paid. Some need the payment sooner. Slow gain generally develops financial problems as the company still has to clear its overheads. In order to solve all these issues, it’s best to factor in government invoices. These are slow-paying invoices. Besides, it offers immediate cash, which you can use to run the business and grow.
Factoring for government contracts transactions is relatively simple. The company finances the invoice, which is generally in two installment payments. The first payment covers 85-90% and is advanced once the contract gets fulfilled.
To be more precise, if the contract is for services, the services must be completed, and if it’s for products, it must be delivered and accepted. Likewise, the second installment is advanced only after the government pays the invoice in full. The second installment covers the 10% to 15% that was initially not advanced.
Factoring receivables comes with numerous advantages. It improves the cash flow quickly by finding slow-paying invoices. Factoring financial lines are flexible. It grows with the business. To most crucial requirement it increases the bar to have invoices from good-paying clients.
Invoice factoring is easier to get. Factoring lines can be deployed in a week or two; however, the time frame varies per the contract and the agency.
Contracts and Funding
In general, most companies work with any contract that provides a service or sells products to the government, i.e.,
- I.T. Specialists
- Product distributors
- Manufacturing companies
- Staffing services
- Security work and more
Government subcontractors and factoring
Government subcontractors also have the option to use invoice factoring. However, they need to keep that in mind that the government is not their client. Moreover, the prime contractor is their client.
Here, the transaction must qualify as regular commercial factoring. Also, the prime contractor needs to have good retail credit and ensure that the payment is on net terms, regardless of whenever they get paid.
Having said that, any leading service provider ensures smooth work. This assures that everything goes in coordination.
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